I seem to be stuck in the US at the moment – blog-wise. I can assure you I escaped their shores at the weekend and am now freezing in Newcastle, NSW. But I still have reading left over from hanging around US book shops last week. One story that is very interesting at the moment is the plan by the Californian State Government to begin issuing IOUs (reserved warrants) because it has “run out of cash”. As far as I can work out the IOUs will not become a second currency (alongside the USD) but one simple extra announcement by the State would be enough to allow California to be sovereign in their IOUs. What do you suppose that extra complication might be?

Well I am now back in Newcastle and in the last two weeks the ocean has slumped from a cold 19 celsius to a freezing 16. See what happens when you turn your back. I think the sharks like the cold water less though. At least that is what I am telling myself as I read another surfer (on the south coast) was mauled last week. Anyway, my casual travel reading also saw me read the July edition of the Harper’s Magazine which had two very interesting articles about developments in the US, which ultimately have global implications. In recent months, I have been becoming more pessimistic about the idea that the current global economic crisis will represent a major change in ideology, away from free market neo-liberalism towards a more sustainable and fairer social democratic policy structure. The articles reinforce that pessimism.

While I am still reflecting on the UNDP workshop I participated at earlier this week in New York, another issue which came up repeatedly during the workshop is the on-going dispute between those who advocate income guarantees against those (such as me) who advocate employment guarantees. I didn’t cover this dispute at all in yesterday’s blog – Bad luck if you are poor!. When you start digging into the claims made by the income guarantee lobby you realise that most of their case is built on a failure to understand how a modern monetary economy works. For those who understand the opportunities available to a government which issues a sovereign currency, then the attractiveness of income guarantees disappears (in my opinion). So this blog documents some of this debate.

Greetings from College Park, Maryland (pronounced Marrilynd! in Australian). It is near Washington (DC) and I have work here (at the UMD) and in the capital for the next 2 days. Weather is hot but we are 189 kms or 2.8 hours from the nearest surf according to Google maps, which is equivalent to being landlocked to me! So no quick surf before work! Losers! I came down here late yesterday (5 hour drive) after a workshop at the Levy Institute jointly hosted with the United Nations Development Program, which was held in upstate New York. No summer up there at the moment but the Catskills Mountains are very beautiful – it is near to Woodstock. Anyway, I left the workshop thinking – bad luck if you are poor!

Several readers have asked me about fiscal rules and I have been promising to write about them for some time now. I was finally goaded into action by the current German rush to madness which will see them constitutionally outlaw deficits. When I saw the news that the German government was pushing constitutional change along these lines I thought good – the Eurozone will be dead soon enough and perhaps a better aligned fiscal and monetary system will emerge. Fiscal rules can take lots of different shapes all of which entrench chronic unemployment and poverty. The only fiscal approach that is applicable to a sovereign government operating within a fiat monetary system is one that ensures full employment is achieved and sustained. Anyway, here is an introduction to the mean-spirited and wrong-headed world of fiscal rules.

Yesterday I reported on a document I received from one of the largest international investment banks in the world. That document is part of that organisation’s advice it gives to bond investors. I used some of the document to illustrate that the understandings of how a modern monetary system operates that I write about here are also now out there in the real world – in the financial markets where bonds are bought and sold. I didn’t identify the document because it is a subscribers-only publication sent to me by the author and I respect his privacy. Today’s blog provides some more insights that will help you better understand the public debate and allow you to cut through the nonsense being peddled by all and sundry.

I received a document today from one of the largest international investment banks in the world. One of its major offices is not far from where I am typing this right now in New York City. The document is a subscribers-only publication and so I cannot make it accessible here. But this blog discusses some of the contents of the document which might help readers who keep worrying about whether anyone important out there believes in the stuff that I write about. There is a constant undercurrent in the comments and private E-mails I receive that says that the treasurer, the central bank, the mainstream journalists and a host of other seemingly important people do not share my views on how the fiat monetary system operates. The issue then is one of credibility.

I am now in New York on business for the next few days then off south to the capital Washington. In this blog I want to outline the horrible scenario that everyone has been predicting would happen – the increasing fiscal deficits will increase taxation. I know that has been on our minds. I have reached the ineluctable conclusion that future taxation will increase as a direct consequence of the current deficits. The tax revenue gained by the government will also reduce future deficits. Wouldn’t it be preferable that we didn’t push future taxation up and instead controlled net government spending? If you believed that you would have rocks in your head. In this blog I will be also be discussing debt, inflation, and other nasties.